Obama Admin Avoiding GM Losses

WSJ: Campaign scared of multi-billion dollar bailout hit

The Obama administration has rebuked pleas from General Motors to sell off government shares to the automaker.

Auto executives have made several overtures to buy out the government’s 26 percent stake in the company, in order to overcome the "Government Motors" moniker that has hurt the company’s image. The Treasury Department, however, has refused to withdraw from the company for fear of a multi-billion dollar loss during an election year. The Wall Street Journal reports:

Treasury officials aren't interested in GM's offer at the current price and aren't in a rush to offload shares, according to people familiar with the matter. The biggest reason: A sale now would leave the government with a hefty loss on its investment.

At GM's Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake. While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, people familiar with the government's thinking have said.

There is also a political calculus. A deal at this time could be fraught for the Obama administration, which has maintained that the bailout saved hundreds of thousands of jobs at a critical time for the U.S. economy and was a win-win for business and taxpayers alike. Huge losses on taxpayer investment in the auto maker's stock could tarnish the administration's overall record in recovering crisis-era bailout money.

Under the original terms of the $50 billion GM bailout, Obama pledged to recover taxpayer money by 2011. But GM has struggled in recent months due to a weak European market. Its stock would have to more than double to fully recover the bailout, according to the most recent Inspector General report.